Tuesday, April 30, 2013

Can Innovations Happen Away from Silicon Valley? It Depends on the Network

The mobile phone market continues to be in
turmoil. The launch of the innovative Galaxy S4 phone is now delayed for the US
carriers T-Mobile and Sprint, and the reason is “supply issues,” which usually
means that there are not enough of them. Unless something has gone wrong in
Samsung’s factories, it means that it is selling more than anticipated in the
markets where it has already been launched. Meanwhile, Finland’s Nokia and
Taiwan’s HTC are battling each other in the marketplace with new phone models,
and also trying to obstruct each other in court with legal claims. Apple is
selling iPhones fast, but not so fast that they can avoid speculations that they
may have to imitate Samsung’s lineup of phones in a range of different screen
sizes. Whew.

Maybe you have noticed already, but only
one of the four companies I mentioned hails from Silicon Valley: Apple. How does
this square with the idea that the Silicon Valley is the center of information
technology innovations, or more generally, that innovations in an industry usually come from agglomerations of technologically advanced firms? Well, there
is a lot of research showing that such agglomerations will continue to produce
innovations and new firms, so there is no need to predict doom for Silicon
Valley. But there is reason to wonder about the exceptions: firms that can stay
innovative away from such agglomerations.

A recent paper by Russell Funk in Academy
of Management Journal looks at innovations in the nanotech industry, which also
has agglomerations (one is in Silicon Valley, of course). He looked at how the
structure of the networks of innovators within each firm combined with the
location to determine the innovativeness. The idea is simple, but novel: we
normally assume that networks that effectively spread knowledge are good for
innovation, and in fact this is what happens when there is a lot of useful knowledge
around. Firms surrounded by other advanced firms should have such networks. But
networks that don’t spread knowledge effectively because the individuals are
not well connected let each individual develop novel and unique ideas.
They can help firms rebound from some of the disadvantage of being away from
other sources of knowledge.

As he expected, he found that firms away from other
high-tech firms were able to innovate more the fewer connections their
innovators had, so maintaining internal diversity helped keep them innovative. We
might suspect that Nokia and HTC, distant from Silicon Valley, are trying this
approach because they are doing many product launches, and are not completely consistent
in their choices. For example, HTC has both Android and Windows phones; Nokia
is simultaneously pushing new models in the smartphone and basic phone market.

So the mobile phone market is likely to
stay interesting for a while, and Russell Funk’s research may explain why that is so. But his research does not predict success, because
innovativeness and success are as closely related as we think. But
that is a story for another blog post.